issue: Transportation & Infrastructure

Obama’s Minimalist Budget

Posted on by The Progressive Policy Institute

President Obama’s new budget is a highly tactical exercise in fiscal minimalism. It proposes just enough spending cuts to be plausible, while putting off the critical work of tax and entitlement reform. Its unspoken premise seems to be: Given the ax-wielding frenzy that grips House Republicans, the best the White House can do now is to frame the fiscal debate on terms favorable to progressives.

The President’s $3.7 trillion budget would trim federal deficits by just over $1 trillion over the next decade. To the chagrin of liberals, the budget proposes to reach this total through a formula of two-thirds spending cuts, one-third tax cuts, rather than a 50-50 split. Also, it limits military spending growth without cutting specific programs. Meanwhile, the blueprint freezes discretionary spending for five years, and cuts over 150 programs, for $25 billion in budget savings next year. In short, the toughest discipline falls on domestic spending, so expect howls of betrayal from the left.

For all that, however, the Obama proposal would still leave us with deficits over 3 percent of GDP in 2020, while doing nothing to brake the runaway growth of costs for Medicare, Medicaid or Social Security, which account for 40 percent of the budget. These costs, propelled by soaring health care prices and demographics, and growing automatically each year, are what drive our nation’s long-term debt crisis.

The new budget does stabilize the national debt, but at a level – 77 percent of GDP – that most economists believe is well above what’s good for our fiscal health. It’s getting panned by deficit hawks. “This budget fails to meet the Administration’s own fiscal target, it fails to tackle the largest problem areas of the budget, and it fails to bring the debt down to an acceptable level,” said Maya MacGuineas of the Committee for a Responsible Federal Budget.

Over the weekend, GOP leaders lambasted Obama for not embracing the much more robust and comprehensive recommendations of his own Fiscal Commission. Its plan would cut deficits by $4 trillion by 2020, make big reductions in tax expenditures, and trim future Social Security and Medicare benefits for the well-off. Bear in mind that, even as they criticize the President’s fiscal pusillanimity, House Republicans have rejected the Fiscal Commission blueprint, oppose tax increases of any kind, and are engaged in an Alphonse-and-Gaston routine with the White House over who should go first on entitlement reform.

Nonetheless, the Commission’s Democratic co-chairman, Erskine Bowles, also expressed disappointment that the President hasn’t used its work as the point of departure for a serious push to restore fiscal stability in Washington. He accurately called the President’s proposal “nowhere near where they will have to go to resolve our fiscal nightmare.”

The administration apparently is calculating that its modest deficit-reduction proposal has several tactical advantages. First, it may better reflect the public’s actual appetite for fiscal restraint. The same polls that show strong public support for reining in public deficits also find majorities opposed to major program cuts. Second, and relatedly, the White House wants to contrast its moderate approach to GOP austerity zealots, who have launched a single-minded jihad against government spending. Once the public tumbles to the implications of the GOP’s demands for $100 billion in domestic program cuts now, Democrats reason, they will recoil and demand a more balanced approach that includes defense cuts and tax hikes.

That seems likely. Republicans have convinced themselves that most Americans share their goal of shrinking government by cutting off its credit card. “The country’s biggest challenge, domestically speaking, no doubt about it, is a debt crisis,” House Budget Committee Chair Paul Ryan said this weekend.

But progressives believe that Americans – especially the independents and moderates who abandoned Democrats in the midterm election – are even more concerned about the scarcity of good jobs and America’s eroding competitiveness. More than fiscal stringency, they are looking to their leaders for a hopeful plan to jumpstart the stalled U.S. job machine.

The President’s budget accordingly makes room for significant new public investments, especially in infrastructure, innovation, and education. He wants to spend $53 billion over the next six years on high speed rail, and invest $50 billion in capitalizing a National Infrastructure Bank. The GOP’s knee-jerk dismissal of such strategic investments as just more government waste is wrong as a matter of economics, and it leaves conservatives without a credible theory for how they would rekindle economic growth.

So maybe Obama is right to stand back and give Republicans all the fiscal rope they need to hang themselves from the tree of uncompromising budget austerity. But his Fiscal Commission, which labored diligently and successfully to find some fiscal common ground between the parties, especially on scaling back tax expenditures, deserves better from him. And sooner rather than later, the President will have to step up and lead on entitlement reform, a national imperative that can no longer be safely deferred.

Obama Raises his Bet on High-Speed Rail

Posted on by The Progressive Policy Institute

The White House won’t back down. That was the signal beamed yesterday when Vice President Joe Biden announced the administration’s plan to spend $53 billion on high-speed rail over the next six years. But questions remain: How can the administration convince a spending-skeptical public it’s a worthwhile investment? And how can it bring long-term funding predictability to high-speed rail?

Since winning control of the House, Republicans have been angling to cancel the administration’s high-speed rail program as part of their deficit reduction plan. Their goal is to halt the program before any new train segment is constructed in Florida and California (where plans are most advanced) and to rescind funds appropriated but not yet spent on other passenger rail lines under the stimulus act.

Yesterday, the administration called their bluff by asking for $8 billion for fast trains in the 2012 federal budget, followed by $45 billion over the next five years.

The proposal puts a bold but reasonable dollar sign on President Obama’s State of the Union pledge to bring high-speed rail to 80 percent of Americans within 25 years. The federal government now spends about $35 billion a year to maintain its highway system. Washington will have to spend considerably more to expand roads to accommodate a growing population if new train lines are not in the transportation mix.

Assets Matter

But to make high-speed rail happen, the White House needs to mount a better public education campaign. For starters, the president must hammer home the point that developing modern infrastructure matters just as much as cutting spending.

In other words, while we want to avoid government waste that raises the national debt, productive debt – or debt that creates future opportunities for all citizens – is not a burden, especially when money can be borrowed at record low interest rates.

A presidential trip to General Electric’s locomotive factory in Erie, Pa., could demonstrate that America has an existing manufacturing base for high-speed rail. This base needs to be tapped before more jobs migrate to countries that actually make things.

GE has pledged to develop high-speed trainsets aimed for the California and Florida lines. CEO Jeffrey Immelt could pitch in by tasking his big financial arm, GE Capital, to help finance promising rail projects.

President Obama should also lean on his newfound friends at the Chamber of Commerce. Joe Biden got it right yesterday by warning that “commerce is going to suffer and it’s going to show up on the bottom line” if the U.S. does not improve the flow of people and goods. Building and operating high-speed lines would also create tens of thousands of middle-class jobs.

Reforming Congressional Spending

Public persuasion must be matched by a more clear-eyed view of how to fund this long-term program without the uncertainty of annual congressional appropriations.

The six-year surface transportation bill coming before this session of Congress could be an excellent vehicle for the White House to develop a reliable source for high-speed rail funding. We have outlined in a policy memo how to restructure the transportation bill, now beset by wasteful congressional earmarks, into a productive program that leverages public money with private capital.

While the White House and House Republicans currently appear far apart on high-speed rail policy, there are areas of compromise. House Transportation Committee Chairman John Mica (R-Fla.) has been critical of stimulus money spent on existing rail lines for upgraded passenger service. Mica says he is in favor of “true” high-speed rail that operates above 150 mph and would support federal funds that reduce trip times along Amtrak’s busy Northeast Corridor.

There seems to be room for the White House to accommodate Mica’s concerns, including expediting an environmental impact study that currently hangs up progress in the Northeast Corridor, and ways for Mica to persuade his colleagues that reflexively obstructing rail projects is not the way to bequeath America a better transportation future.

How to Avoid the Infrastructure Blind Side

Posted on by The Progressive Policy Institute

In listening to President Obama talk about infrastructure in his State of the Union Message, I couldn’t stop thinking about last year’s great movie “The Blind Side.” A young, talented, left-handed quarterback fades back to pass, surveys the field, has three receivers open and…bam, once again he’s crushed by a bull-rushing defensive end, who once again rolls over his right guard.

President Obama may have greatness in him, and he may become great, but where infrastructure is concerned every time he steps up to the lectern I have to shut my eyes – it’s that scary.

First, President Obama doesn’t have the personnel in place for a successful – let alone ‘we do big things’ – infrastructure initiative. Think about it: who in the White House is in charge of infrastructure? And when has a signal initiative ever been successful without someone in charge?

Whether this is our Sputnik Moment or not, infrastructure is rocket science. If the U.S. Is to double our spending on infrastructure (moving from $150 billion year to $300 billion), someone in the White House needs to provide clear signals and hefty shoves to the Department of Transportation and the Department of Energy, as well as to the responsible officials (governors and secretaries) in the fifty states. Currently there is no one…bam.

Second, there is no overall infrastructure plan. A sustained increase in U.S. competitiveness does not require magical investments, whether in high-speed rail, the smart grid, electric cars and renewable energy – truly wide-open receivers downfield. It requires a clear consensus vision of the global challenge, and of which projects are strategic to responding to that challenge, and its opportunities.

The President not only needs to build a team, he needs to create a vision for that team – it is what great presidents do. Infrastructure built now provides value for 20-30 years, so where does the U.S. want to be in 20-30 years, and how – specifically – are we going to get there? Otherwise we will continue to spend incredibly scarce political, financial, and managerial resources on projects that are immaterial to our success. Unless the President’s team – and right now we are all on his team – is driven and directed by a vision of national competitiveness and renewal…bam.

Third, from the business point of view, the first two issues – not much of a team, and not much of a plan – are ‘walk away now’ fatal flaws – but there is another issue that needs to be addressed, perhaps the biggest blind side issue of all: how is a sustained infrastructure initiative to be financed in an environment of severe federal and state austerity?

The only serious answer is a National Infrastructure Bank, something that both Democrats and Republicans agree upon – and an idea strongly favored by incoming House Transportation and Infrastructure Committee Chairman John Mica.

All of our competitors –China, India, Russia, Brazil, the European Union – have national infrastructure banks. It is a source of strategic advantage in the globalized economy, and needs to be a fully-functioning part of our infrastructure renewal. Without a significant funding source, in the range of $250 billion-$300 billion over ten years, I simply have to shut my eyes in horror…bam, bam, bam.

In watching President Obama step up to the lectern on infrastructure – now for the third or fourth time in his young presidency – I am both fearful and perplexed. The President needs to step back from the field – up to the balcony, as Harvard’s leadership guru Ronnie Heifetz would say – and reflect on what actually needs to be done. To recognize that he needs to be more coach than quarterback, and take the time to find the players (a Team of Rivals he does not have), build the team around a compelling vision (the real job of a President) and finance the effort (you can ‘dream of things that never were, and ask why’ – but if you want to see those things you will have to find a practical, sustained, politically acceptable way to pay for them).

I have to get the nightmare out of my mind of a young, supremely talented quarterback, dropping back to pass – once again – and then…bam. I want my talented President to step up to the lectern and this time, get the who, what, and how of his infrastructure initiative right.

State of the Union on High-Speed Rail: How to Pay for Fast Trains

Posted on by The Progressive Policy Institute

In setting a national goal of providing high-speed train service to 80 percent of Americans by 2035, President Obama challenged himself and Congress to come up with a way to finance the biggest transportation program since the Interstate Highway System.

The president called on Congress to “redouble” efforts to rebuild the nation’s transportation infrastructure and advance high-speed rail (HSR) even as it cuts elsewhere. He framed the issue as part of our generation’s “Sputnik moment” where the world has changed and government investment is needed to generate growth and stimulate private innovation.

“We do big things,” he said, wrapping HSR in the mantle of other federal initiatives, such as Transcontinental Railroad initiated by Abraham Lincoln and the highway system inaugurated by Dwight Eisenhower, that transformed American life.

Obama can start by submitting to Congress a radically reformed six-year surface transportation appropriations bill to replace the expiring act known as SAFETEA-LU, as we argued in a recent memo.

SAFETEA-LU has already been lambasted by Congress’ own advisory group, the National Surface Transportation Policy and Revenue Study Commission, as directionless and dysfunctional.

The commission has pointed out that $24 billion was appropriated to more than 5,000 congressional “earmarks.” That means that each member of Congress got to pick an average of 10 projects for their districts without any outside review. Such earmarking has made highway funding a poster child of the kind of pork-barrel spending that House leaders – and many Tea Party-backed House Republicans – vow to slash.

So here’s the President’s chance to cut government waste while securing long-term HSR funding. The new bill should allow money collected through the Highway Trust Fund to flow to HSR. Eliminating earmarks and such peripheral programs as Safe Routes to Schools could free up $5 billion a year for rail construction – or $30 billion over the bill’s lifetime – without requiring an increase in the federal gas tax, which is an anathema to Congressional Republicans.

The administration should also think of creative ways to leverage public monies to seed private capital for HSR construction. It was great to hear the president allude in his speech to private investment as a way to finance his rail program. We need to hear more as Secretary of Transportation Ray LaHood develops tangible ways to leverage private capital, including capital promised by foreign train builders.

Using federal money to seed private-sector investment has long been advocated by John Mica (R-Fla.), the new chair of the House Transportation and Infrastructure Committee. Mica, who is responsible for drafting the next surface transportation bill, could be a constructive partner with the Obama administration.

Mica supports “true” high-speed rail as a transformational technology and has been critical of the administration’s allocations of federal stimulus funds to higher-speed conventional rail projects.

We have shared his concern that the administration, in its first round of grants a year ago, spread funds that would marginally improve passenger train speeds on shared track with freight railroads. Since then, the administration has placed much more emphasis on getting a dedicated high-speed route under construction between Tampa and Orlando and jumpstarting California’s high-speed line between Los Angeles and San Francisco.

Mica wants to use private capital to underwrite high-speed rail development in the Northeast Corridor. He is holding a hearing today in Manhattan where he will take testimony from New York Mayor Michael Bloomberg, former Pennsylvania governor Ed Rendell, Thomas Hart of the U.S. High Speed Rail Association and Petra Todorovich of the Business Alliance for Northeast Mobility.

Obama demonstrated on Tuesday his commitment to the vision of high-speed rail. Mica can turn this vision into funded reality in a divided government. And Ray LaHood, a former Republican congressman who knows Mica quite well, says he is open to finding common ground. How these gentlemen interact over the next six months will bear close attention.

Grading the State of The Union: A Solid B+

Posted on by The Progressive Policy Institute

Last week, the Progressive Policy Institute released a Memo to President Obama, which contained 10 Big Ideas for Getting America Moving Again. How did the President’s speech match up to our recommendations?

Overall, he did quite well. Eight of our ten ideas were largely consonant with proposals included in the address, and the future-oriented rhetoric echoes the language in our memo. We also appreciate his willingness to look to both sides of the aisle to find solutions.

However, we were disappointed that he did not discuss the sluggish housing market, and that he did offer any ideas to address the roots of the partisan rancor in Washington.

Our overall grade: B+

Here’s a proposal-by-proposal scorecard:

 

1. Removing Obstacles to Growth: A Regulatory Improvement Commission

 

We proposed: A periodic review process conducted by a Regulatory Improvement Commission, modeled loosely on the BRAC Commissions for military base closures.

The President said: “To reduce barriers to growth and investment, I’ve ordered a review of government regulations.”

Analysis: The President clearly understands that we need to prune obsolete and ineffective regulations and stimulate economic innovation and entrepreneurship. But agency self-review is inadequate.

Grade: A-

2. Internal National Building: A National Infrastructure Bank

 

We proposed: Smart, innovative financing solutions that enable us to restore the backbone of our economy. A well-structured National Infrastructure Bank can play this role by leveraging public dollars with the participation of private-sector investors.

The President said: “The third step in winning the future is rebuilding America.  To attract new businesses to our shores, we need the fastest, most reliable ways to move people, goods, and information — from high-speed rail to high-speed Internet.”

Analysis: Making infrastructure one of five sections of the speech gave it real prominence. But the President needs to do more than just propose “that we redouble those efforts.”   He needs to lay out a mechanism to do that rationally, and to identify clear funding for it. A National Infrastucture Bank could accomplish that.

Grade: A-

3. A Way to Pay for High-Speed Rail

We proposed: Restructuring the Highway Trust Fund into a Surface Transportation Trust Fund that recaptures its original mission—to build and maintain an efficient national transportation network—and updates that mission to reflect 21st-century priorities, including upgrades to our passenger and freight rail systems.

The President said: “Within 25 years, our goal is to give 80 percent of Americans access to high-speed rail. “

Analysis: We applaud the President’s full-throated commitment to high-speed rail. However, he’s going to need to figure out a way to pay for it. We suggest he read Mark Reutter’s excellent memo on how to finance high-speed rail.

Grade: A-

4. Restoring Fiscal Discipline in Washington

 

We proposed: Restoring fiscal discipline in Washington by trimming the $1.1 trillion in outdated tax expenditures, capping domestic spending (including defense), eliminating supplemental defense budgets, and slowing mandatory expenditures by reducing benefits for affluent retirees.

The President said: “Starting this year, we freeze annual domestic spending for the next five years… we cut excessive spending wherever we find it –- in domestic spending, defense spending, health care spending, and spending through tax breaks and loopholes… we should also find a bipartisan solution to strengthen Social Security for future generations…we simply can’t afford a permanent extension of the tax cuts for the wealthiest 2 percent of Americans.”

Analysis: The President clearly gets the seriousness of the looming debt crisis, but understands the difference between smart cuts and needed investments. But he could have come out more strongly in favor the Fiscal Commission’s work, and he only paid lip service to entitlements.

Grade: B+

5. Setting National Targets: A Balanced Energy Portfolio

We proposed: A national Balanced Energy Portfolio with a target fuel mix allocated into thirds by 2040: one third of our electricity generated by renewable resources, one third by nuclear power, and one third from traditional fossil fuels.

The President said: “By 2035, 80 percent of America’s electricity will come from clean energy sources.  Some folks want wind and solar.  Others want nuclear, clean coal and natural gas.  To meet this goal, we will need them all — and I urge Democrats and Republicans to work together to make it happen.”

Analysis: The President is thinking big, but also recognizing that nuclear and natural gas need to be part of any energy mix.

Grade: A

6. Greening the Pentagon: An Energy Security Innovation Fund

We proposed: An Energy Security Innovation Fund, housed in the Pentagon, to help companies bridge the gap. Such a fund would leverage public dollars with private money to support research and deployment of the most promising green products.

The President said: “We’re telling America’s scientists and engineers that if they assemble teams of the best minds in their fields, and focus on the hardest problems in clean energy, we’ll fund the Apollo projects of our time.”

Analysis: The next clean energy breakthrough is going to require support from the government. But Obaa should look beyond the Department of Energy and recognize that the military can be a fertile source of innovation, too.

Grade: A-

7. Bringing Public Education into the 21st Century

We proposed: To radically transform public education by growing charter schools, ending teacher tenure as we know it, spurring a network of “Innovation Zones”, and creating a “Digital Teacher Corps”.

The President said: “Our schools share this responsibility.  When a child walks into a classroom, it should be a place of high expectations and high performance.  But too many schools don’t meet this test.”

Analysis: Education is clearly the key to our ability to “win the future,” and the President understands this. We support his Race to the Top program and the call for more bright young people to go into education. But we also hope he thinks more creatively about radical new ideas for 21st century education, embracing the possibilities of charter schools, digital education, and “innovation zones.”

Grade: A-

8. Lifting Housing Markets: One Million Homeowner Vouchers

We proposed: An innovative way to jump-start the housing market would be for the federal government to provide a million vouchers that allow low-income renters to become homeowners.

The President said: (Nothing)

Analysis: Surprisingly, the President failed to mention the sluggish housing market, which many economists believe is one of the leading factors holding back an economic recovery.

Grade: F

9. Align Innovation and Immigration

We proposed: Aligning innovation and immigration by providing a citizenship path for foreign students with advanced technical degrees and illegal immigrants’ children who are interested in national service.

The President said: “I strongly believe that we should take on, once and for all, the issue of illegal immigration… I know that debate will be difficult.  I know it will take time.  But tonight, let’s agree to make that effort.  And let’s stop expelling talented, responsible young people who could be staffing our research labs or starting a new business, who could be further enriching this nation. “

Analysis: The President deserves points for having the courage to bring up immigration reform. But he clearly gets it: our global competitiveness depends on continuing to be a magnet for the world’s best and brightest.

Grade: A

10. Taking Power from Special Interests: A Fair Way to Finance Elections

We proposed: A hybrid Fair Elections system introduced by Sen. Dick Durbin (D-Ill.) to allow federal candidates to choose to run for office without relying on large contributions by using federal money to match small donations.

The President said: (Nothing)

Analysis: Campaign finance reform is not on the agenda, and the President does not seem particularly interested in putting it there. This is too bad. A great way to break the partisan rancor in Washington would be change the way politicians get elected to office. As long as congressional campaigns are privately funded, and as long as the big donations come primarily from ideologues and special interests, pragmatic candidates are going to have a tough time raising the resources they need to get started, and a difficult time winning in all-important low-turnout primaries.

Grade: F

Conclusion:

Overall, it was a great speech. It laid out the problems that we face as a nation, and provided a vision of an America that invests smartly in the future, building infrastructure, providing educational opportunities, and remaining a magnet for the best and brightest in the world, and all in a way that could move us past partisan divides.

The Right Growth Formula

Posted on by The Progressive Policy Institute

The specter of economic decline is haunting America. President Obama seeks to banish it by making jobs and U.S. competitiveness the centerpiece of his State of the Union report to Congress tomorrow. This sets the stage for a critical contest between dueling theories about how America can get its economic mojo back.

Over the weekend, Republicans flooded the media with preemptive strikes against Obama’s expected calls for boosting public investment to spur growth. “With all due respect to our Democratic friends, any time they want to spend, they call it investment, so I think you will hear the president talk about investing a lot Tuesday night,” GOP Senate leader Mitch McConnell told “Fox News Sunday.” “This is not a time to be looking at pumping up government spending in very many areas.”

True to form, Republicans have a very simple theory for rekindling jobs and growth: Cut federal spending. That’s why they’ve tapped their leading fiscal hawk, House Budget Committee Chairman Paul Ryan, to respond to Obama’s speech. And Rep. Michele Bachmann will offer an unofficial, “Tea Party” riposte to the President online.

Now, I’m all for fiscal discipline. I’ve chided progressives for posing a false choice between deficit reduction and economic growth. Restoring fiscal stability is an essential ingredient of any credible plan for robust growth.

But cutting spending by itself won’t help us rebuild our infrastructure (which is the foundation for productivity), strengthen our comparative advantage in science and technological innovation, or produce a highly skilled workforce. As virtually all serious economists recognize, these are tasks for government.

Yet today’s Republicans are so besotted by anti-government populism that you can’t even count on them to be good capitalists anymore. Perhaps conservative think tanks should organize seminars to reacquaint House Republicans with Adam Smith, whose defense of laissez faire economics did not blind him to government’s responsibility to supply public goods like roads, ports and education. As he wrote in the Wealth of Nations:

The third and last duty of the [government] is that of erecting or maintaining those public institutions and those public works, which, although they may be in the highest degree advantageous to a great society, are, however, of such a nature, that the profit could not repay the expense to any individual or small number of individuals, and which it therefore cannot be expected that any individual or small number of individuals should erect or maintain.

As PPI maintains in Getting America Moving Again, a new Memo to President Obama, it will take both more public investment and more dynamic markets to reinvigorate our economy. We need to boost spending on research and commercialization of new inventions. We also need to boost spending on modernizing the nation’s transport and energy infrastructure – for example, by building high speed rails and smart grids that can accommodate clean energy generation. This can and must be done within a new framework for restoring fiscal stability that cuts tax expenditures, caps spending on defense and domestic programs, and most importantly, slows the unsustainable growth of the big entitlement programs.

At the same time, we also need to revamp archaic tax and regulatory policies that dampen incentives for economic innovation and entrepreneurial risk-taking. To that end we have proposed a base-closing style commission charged with culling the accumulation over time of burdensome rules and regulation.

In truth, neither party’s economic orthodoxies are equal to the challenge facing our country. That’s why President Obama needs to challenge both sides tomorrow to unite behind a bold plan for a national economic resurgence.

The Washington Post Gets its Signals Wrong on High-Speed Rail

Posted on by The Progressive Policy Institute

One might expect, with a disastrous oil spill just behind us and gas prices predicted to soar to $5 a gallon by 2012, that the Washington Post would address the Obama administration’s alternative to oil-based transportation with nuanced understanding.

Sad to say the paper has instead served up an editorial full of misinformation about the administration’s high-speed rail project in California. The proposed 200-mph train system between southern California and the Bay Area has been in the crosshairs of House Republicans led by Jerry Lewis (R-Cal.), who has introduced a bill to force the return of $2 billion in federal stimulus funds awarded to the project.

The Post has placed its prestige behind Lewis (without saying so) by calling for a halt to the project until its costs, route alignment, potential ridership, and other details are studied to some unspecified level that meets the paper’s approval.

To justify such a draconian proposal, much at odds with the prevailing bipartisan support for rail in the state, the Post characterizes the project as a flakey California “experiment” – a suggestion that’s pretty far removed from reality.

The railway is based on technology that’s been in operation for 46 years in Japan (where it has carried three billion riders without a single fatality) and has spread throughout Europe and southeast Asia. China is committed to opening a dozen HSR lines equal in size and complexity to the California project.

The editorial says that “a series of skeptical blue-ribbon documents” have called into question the financial viability of the system. “Most damning” of these documents is a report by the California High-Speed Rail Peer Review Group calling official estimates of potential ridership so unreliable that they “offer little basis for proceeding.”

Those words would be damning if they weren’t yanked out of context. They come from a discussion of the methodology of the ridership study and the assertion by one consultant that, due to large “error bounds,” the projections might or might not be accurate. Either outcome was equally possible.

The Review Group called on the California High Speed Rail Authority to reexamine and refine the methodology, if needed. That’s it. There was no implication that the estimates were cooked to favor the project, as the Post implies. In fact, the Review Group went out of its way to say that no forecasting model can predict 100 percent accuracy.

The editorial continues by describing the first segment of the route, going from Bakersfield north to the small village of Borden, as the “train to nowhere.” This is plain nonsense. As explained at public hearings and on an internet posting by project CEO Roelof van Ark, the railway is not designed to terminate at Borden anymore than the Interstate Highway system planned to end in Missouri, where the first miles were laid.

Stopping temporarily at Borden was decided because the environmental review was nearly complete and the line could connect to existing rail track, allowing the new line to have “independent utility” (as required by the California legislature) before construction resumed north to Sacramento and northwest to San Francisco.

The editorial is similarly disingenuous when it says that the system “has attracted zero private capital” and has been “unable to guarantee any source – governmental or private – for almost half of the cost of completion.”

Rail consortiums in France, Germany, Japan, and Korea, as well as the U.S., have expressed interest in the project. China has told outgoing Gov. Arnold Schwarzenegger that it might underwrite California’s construction costs. But the project hasn’t yet reached the stage when companies have been invited to make bids.

If the Post read the Review Group report carefully, it would better understand why private capital has been reluctant to openly commit to the project. “The demonstration of firm public sector financial commitments will be an absolute necessity prior to approaching sources of private capital,” it stressed. In other words, investors won’t sink money into a project that’s under the threat of rescission by the likes of Rep. Lewis.

There’s more to suggest a willful ignorance of the facts pertaining to high-speed rail by the newspaper. For example, its statement that “in much of the country passenger rail can’t compete with car travel by interstate highways.” That’s only true because Amtrak trains run at 50 mph averages. As Robert Cruickshank points out, trains that zip passengers between LA and San Francisco in under three hours – or less than half the time it takes to drive between the cities on a good day – are going to change the way people travel.

The base projection of 65 million annual riders when the system is completed in 2030 may prove too low considering that California is expected to add 8-10 million more residents over the next 20 years. The Peer Review report says that the railway could “achieve high profits” once it’s finished.

That’s a bonny prospect for Californians, even if it doesn’t fit the prejudices of the Post, which ends its editorial with the revealing comment that it’s probably only in its own backyard, the Northeast Corridor, where federal rail investment “makes sense at all.”

Our Aging Capital Stock

Posted on by The Progressive Policy Institute

If things feel more decrepit and worn-out these days, it’s because they are. The average age of the U.S.  capital stock is at a 40-year high in all three major categories:  nonresidential, residential, and government. Take a look at this chart:

One unpleasant surprise after another, from the top down.

  • The age of the residential stock is at its highest level in 40 years, despite the mammoth building boom of the 2000s.
  • The age of the government capital has steadily risen over the past 40 years, suggesting great underinvestment in public infrastructure.
  • The age of the private nonresidential capital stock has risen more or less steadily since the early 1980s, with a slight dip in the New Economy boom of the 1990s.

Let’s break it down by industry. This chart shows the change in the average age of the capital stock since 2000.

It’s kind of an odd and surprising picture. The sectors which got younger were mining, farming, and transportation. The information sector, which was supposed to be leading the economy, had the biggest rise in average age. That’s because we just weren’t investing enough in information technology over this stretch to make up for the aging of the old physical infrastructure.

This article is cross-posted at Innovation and growth

Obama Doubles Down on High-Speed Rail Investments in California and Florida

Posted on by The Progressive Policy Institute

The Obama administration yesterday called the bluff of two newly elected Republican governors and regained control of its high-speed rail program. Confronted by Governor-elects Scott Walker of Wisconsin and John Kasich of Ohio, who vowed to kill the administration’s signature high-speed transportation initiative in their states when they take office next month, U.S. Transportation Secretary Ray LaHood preemptively yanked $1.195 billion not yet spent by the states.

This is good news and something we had urged. It shows resolve by the administration against politically motivated obstructionism. A backlash has been growing in Wisconsin against Walker’s anti-rail rhetoric. Now voters can mull over how he “saved” them money by destroying thousands of construction jobs that the proposed Milwaukee-Madison rail line would have created. Plus Wisconsin and Ohio may owe the federal government upwards of $25 million already spent on rail planning.

The administration said it would redirect the bulk of the freed funds to California and Florida, assuring that these truly transformative projects can move forward even if a Republican House blocks rail funds in the upcoming federal budget.

California will receive $624 million of the redirected funds, adding to the $3 billion previously awarded toward the construction of a 220-mph railway between Los Angeles and San Francisco. Combined with matching state funds from a voter-approved bond referendum, California now has $7 billion committed to the project.

Both outgoing Republican governor Arnold Schwarzenegger and incoming Democratic governor Jerry Brown are strong supporters of the rail project, despite California’s current budget woes. Last week, the California High Speed Rail Authority approved construction of the first leg of the line, a 65-mile stretch in the Central Valley running through Fresno. The redirected funds are likely to enable the authority to extend construction to Bakersfield.

Florida will get $342 million on top of the $2.05 billion previously allocated to build a high-speed train on a new right of way between Orlando and Tampa.

Incoming Republican governor Rick Scott initially opposed the line, but has softened his position, saying he is in favor of high-speed rail so long as Florida taxpayers don’t have to foot the bill. Yesterday’s allocation basically closes the funding gap. It strengthens LaHood’s prediction that the Florida project will break ground next year.

Of the remaining $230 million redirected by LaHood, the state of Washington will receive $162 million to rebuild trackage and signaling on an existing Amtrak route between Portland and Seattle. The other major recipient ($42 million) was Illinois, whose re-elected Democratic Governor Pat Quinn is an ardent rail advocate.

Focusing federal funds on a few core projects is a smart strategy as the administration realizes that additional rail allocations in a Republican-controlled House are far from certain. The redirected rail funds give the administration breathing room to keep the program afloat at least through the 2112 election cycle.

Rep. John Mica (R-Fla.), the likely chair the House Transportation and Infrastructure Committee in January, has been critical of rail projects – such as the now-rescinded Wisconsin and Ohio lines – where trains would only reach maximum speeds of 110 mph.

Mica has repeatedly said he favors speeds of over 150 mph and wants private partners to help fund the projects. Earlier this week, a consortium led by Central Japan Railway said it may offer $210 million in loans to help pay for the Tampa-Orlando line if its high-speed equipment was selected by the state.

Paradoxes of Actually Governing 101: The Republican Earmark Backtrack

Posted on by The Progressive Policy Institute

I must admit, I take a certain delight in watching the Tea Party contingent realize that even they can’t quite stand 100 percent behind their extremist anti-government rhetoric.

Here is Michele Bachmann, backtracking in Politico on the great Republican idea of banning all earmarks: “But we have to address the issue of how are we going to fund transportation projects across the country?” Bachmann, it turns out, wants to make sure that the federal government pays for the Stillwater Bridge, which connects her Minnesota district to Wisconsin over the St. Croix River. Such is the theme of the entire Politico story: Even hard-core Republicans decide they want “member-directed spending” after all, and they are now figuring out how to get around their bold decision to kill earmarks.

The earmark ban was always more political theater than anything else. As I’ve written for Miller-McCune, earmarks only account for about two percent of all discretionary spending, and the money would wind up being spent anyway by normal funding mechanisms, just without the local intelligence of needs that Representatives tend to bring.

But the fun thing to watch now is how, despite all the impassioned railing against wasteful government spending, the Tea Partiers are realizing that their constituents actually like federal involvement in the local economy. And that in order to get re-elected, they are actually going to have to make sure that federal money keeps flowing in.

This should hardly come as a surprise. As I recently noted here at ProgressiveFix, polling shows that while Republican voters bash government in the abstract, they tend to approve of actual government programs in the specific, including spending on transportation. Political scientists have labeled this the symbolic conservatism/operational liberalism divide, since many voters like to say that they are conservative, but when it comes down to actual programs, they actually want government to do stuff.

Presumably, this will not be the last time that the Tea Party brigands find themselves caught up in the paradox of realizing the voting public is not so extreme is the cathartic Washington-bashing of campaign season made them out to be. I look forward to watching the twists and turns.

British Deal Shows Private Investment Demand for High-Speed Rail

Posted on by The Progressive Policy Institute

This week, the British government will formalize an agreement with two Canadian pension funds with enormous implications for passenger train development in the United States. In return for the right to operate a high-speed rail line linking London with the Channel Tunnel for 30 years, the Ontario teachers and municipal employee pension funds have agreed to pay the UK government $3.4 billion.

The sale not only represents a big vote of market confidence in the future of high-speed rail, but points to a route for building and operating new train lines in the U.S.

In the wake of the equities meltdown, U.S. pension funds are seeking “safe havens” to invest, while states and the federal government are looking for ways to build expensive rail infrastructure in the face of record budget deficits.

Here’s a solution: Structure high-speed rail projects to attract pension funds and other institutional investors through operating concessions and other long-term cash-generating instruments.

Making Money While Generating Jobs

Consider the $133 billion Florida State Board of Administration, currently winding down its loss-generating equities portfolio and concentrating on core fixed income.

If the Florida State pension fund invested just 3 percent of its portfolio in the state’s high-speed rail line, that would generate $4 billion. That’s enough to cover both the $500 million shortfall in the high-speed segment between Tampa and Orlando (the Obama administration has already allocated $2.05 billion for this project) and the state’s portion of a Miami-Orlando route with excellent ridership potential.

Similarly, the California Public Employees’ Retirement System (CalPERS) has adopted a new investment policy with a targeted 3 percent allocation of assets, or about $7 billion, in infrastructure.

The proposed bullet train between Los Angeles and San Francisco is expected to generate as much as $3 billion in profits by 2030. By allocating some of its funds to the $40 billion rail project, CalPERS could enjoy a stable return while providing the Golden State with an enormous job-generating public work.

Other institutional investors, such as labor unions, could be attracted to rail partnerships and concessions that diversify their pension portfolios while providing direct economic benefits to their members.

Such new-style financing would require a marketplace with transparent trading and timely data, amounting to a new source of opportunity for the investment community. In a sense, Wall Street could come full circle to its origins as the exchange place for European capital seeking profit in American railway construction in the 19th century.

High Level of Investor Interest

Back to the Brits, it is crucial to note that the $3.4 billion interest in High Speed-1, the London-Channel link, exceeded the highest hopes of David Cameron’s coalition government, which inherited the initiative from Gordon Brown’s Labor government.

In the words of one commentator, the asset sale “came as a pleasant surprise” to observers who believed the UK government “would have to settle for knock-down prices” because of the world recession.

The auction also attracted many more bidders than expected. The Ontario Municipal Employees Retirement System and Ontario Teachers’ Pension Plan, allied with Borealis Infrastructure, beat a long list of potential buyers, including insurance giant Allianz and investment bank Morgan Stanley.

Borealis already operates the Detroit River freight rail tunnel between the U.S. and Canada on behalf of the pension funds. The Borealis group will receive a revenue stream from access charges paid by train companies using HS-1. In return, it will be responsible for preserving the line as a high-speed railway and to periodically improve track and structures to state-of-the-art standards.

Eurostar fields trains between London and Paris and London and Brussels. Deutsche Bahn, the German rail carrier, has announced plans to operate from London to Frankfurt and London to Amsterdam.

In addition to these services, the Borealis group has the right to sell access to other passenger carriers and to develop freight traffic.

Setting a Monetary Value on High Speed

The British approach marks a turning point. Prior to now, high-speed lines, such as France’s TGV and Spain’s AVE, were built and operated by government or government-directed entities. The profits or losses from high-speed trains were part of the financial profile of the larger rail systems.

Nearly all experts agree that fast trains earn higher per-mile revenues than conventional-speed trains and substantially more than commuter and branch-line services.

The British concession puts a monetary value on high-speed rail that can serve as a basis for a market in future railway concessions and stock sales in equipment and infrastructure-building companies.

HS-1 was one of the most expensive rail projects in the world due to extensive bridging, tunneling and station construction. Opened in November 2007, the 68-mile line cost $8.3 billion.

The concession sale returns 40 percent of the build cost to the British treasury. When the concession ends in 2040, the railway will revert back to the government, which expects to re-bid the property for an equal or higher price.

By this means, HS-1 will continue to return a dividend to taxpayers and, over the course of its 150-year-plus lifecycle, repay its construction cost, probably several times over.

This prospect differs from the scary scenario presented by U.S. critics (including the Republican governor-elects of Wisconsin and Ohio) who charge that high-speed rail is a money pit requiring long-term government subsidies to operate.

Summing up the rap against rail as “high-speed pork,” Washington Post columnist Robert J. Samuelson recently complained, “If private investors concurred [that fast rail was profitable], they’d be clamoring to commit funds; they aren’t.”

The high-speed chase by investors for High Speed-1 shows just how off track these critics are.

photo credit: Jason Pier

Why Some States are New Economy States

Posted on by The Progressive Policy Institute

When it comes to innovation-based growth, not all states are equal. Certain states are on the front lines, and are accordingly most likely to lead the way to economic recovery. According to a new report from the Information Technology and Innovation Foundation, the most leading New Economy states all excel at supporting a knowledge infrastructure, spurring innovation, and encouraging entrepreneurship.

The new report, The 2010 State New Economy Index, uses 26 indicators to assess states’ fundamental capacity to successfully navigate economic change. It measures the extent to which state economies are knowledge-based, globalized, entrepreneurial, IT-driven and innovation-based – in other words, the degree to which state economies’ structures and operations match the ideal structure of the New Economy.  Indicators include percent of the population online, fastest growing firms, exports, industry and state R&D among others.

The top five states – Massachusetts, Washington, Maryland, New Jersey, and Connecticut —are at the forefront of the nation’s movement toward a global, innovation-based economy.  Massachusetts has been the top ranked state in all iterations of the report (1999, 2002, 2007 and 2008). The Bay State boasts a concentration of software, hardware, and biotech firms supported by world-class universities such as MIT and Harvard in the Route 128 region around Boston. It survived the early 2000s downturn and was less hard hit than the nation as a whole in the last recession. And it has continued to thrive, enjoying the fourth-highest increase in per-capita income. Washington State  (which ranked fourth in 2007 and second in 2008) scores high due not only to its strength in software (in no small part due to Microsoft) and aviation (Boeing), but also because Puget Sound region has emerged as entrepreneurial hotbed.

Maryland remains third (as it was in 2007 and 2008, as well), in part because of the high concentration of knowledge workers, many employed in the District of Columbia suburbs and many in federal laboratory facilities or companies related to them.  These and the other top ten New Economy states (New Jersey, Connecticut, Delaware, California, Virginia, Colorado, and New York) have more in common than just high-tech firms. They also tend to have a high concentration of managers, professionals, and college educated residents working in “knowledge jobs” (jobs that require at least a two-year degree). With one or two exceptions, their manufacturers tend to be more geared toward global markets, both in terms of export orientation and the amount of foreign direct investment.

All the top ten states also show above-average levels of entrepreneurship, even though some, like Massachusetts and Connecticut, are not growing rapidly in employment.  Most are at the forefront of the IT revolution, with a large share of their institutions and residents embracing the digital economy. In fact, the variable that is more closely correlated with a high overall ranking is jobs in IT occupations outside the IT industry itself. Most have a solid “innovation infrastructure” that fosters and supports technological innovation. Many have high levels of domestic and foreign immigration of highly mobile, highly skilled knowledge workers seeking good employment opportunities coupled with a good quality of life.

The two states whose economies have lagged most in making the transition to the New Economy are Mississippi and West Virginia. Other states with low scores include, in reverse order, Arkansas, Alabama, Wyoming, South Dakota, Kentucky, Louisiana, and Oklahoma. Historically, the economies of many of these and other Southern and Plains states depended on natural resources or on mass production manufacturing, and relied on low labor costs rather than innovative capacity, to gain advantage. But innovative capacity (derived through universities, R&D investments, scientists and engineers, and entrepreneurial drive) is increasingly what drives competitive success.

While lower ranking states face challenges, they also can take advantage of new opportunities. The IT revolution gives companies and individuals more geographical freedom, making it easier for businesses to relocate, or start up and grow in less densely populated states farther away from existing agglomerations of industry and commerce. Moreover, notwithstanding the recent decline in housing prices, metropolitan areas in many of the top states suffer from high costs (largely due to high land and housing costs) and near gridlock on their roads. Both factors may make locating in less-congested metros, many in lower ranking states, more attractive, particularly if their metropolitan areas offer high-quality schools, high-quality and efficient government, and a robust infrastructure.

Perhaps the most distinctive feature of the New Economy is its relentless levels of structural economic change.  The challenges facing states in a few years could well be different than the challenges today.  But notwithstanding this, the keys to success in the new economy now and into the future appear clear:  supporting a knowledge infrastructure (world class education and training); spurring innovation (indirectly through universities and directly by helping companies); and encouraging entrepreneurship.  In the past decade a new practice of economic development focused on these three building blocks has emerged, at least at the level of best practice, if not at the level of widespread practice.  The challenge for states will be to adopt and deepen these best practices and continue to generate new economy policy innovations and drive the kinds of institutional changes needed to implement them.

photo credit: Chantal Wagner

 

How Two Republican Governors Are Giving High-Speed Rail an Unintentional Boost

Posted on by The Progressive Policy Institute

Talk about a blessing in disguise. Just as the Obama administration’s high-speed rail program was running out of congressionally-appropriated cash, Governor-elects Scott Walker of Wisconsin and John Kasich of Ohio have come chugging to the rescue.

By vowing to kill planned passenger train lines in their states, the newly elected Midwest Republicans have potentially freed $1.2 billion in federal rail money that can be used to build “true” high-speed routes elsewhere. The windfall represents more than the $1 billion that the White House has requested from Congress in next year’s budget. It gives the administration breathing space to keep the program going even if the Republican-led House blocks rail appropriations in 2011.

Since the Wisconsin and Ohio grants are of secondary importance to the national goal of getting a 150-mph-plus rail line up and running, the governors’ anti-train stance amounts to an unintended gift to the Obama administration

To be sure, benefiting high-speed rail was not the intent of Walker and Kasich. Both politicians have a history of hostility to public transit. Walker has opposed light rail, commuter rail and other transit initiatives in his current job as Milwaukee County Executive. Kasich, a former Ohio Congressman turned Fox News host, likes to say that the only kind of train he approves of is a freight train.

Both have called on Washington to divert the rail money to state highway projects. Ray LaHood, U.S. secretary of transportation, said this isn’t permitted under the law. LaHood told a rail conference last week that he plans to reallocate the money to other states and will bill Wisconsin and Ohio for federal funds already spent on the suspended rail lines.

Poor Choices for Rail Aid

The $810 million in Wisconsin money was to extend Amtrak’s existing Milwaukee-Chicago Hiawatha line to Madison, with a top speed of 79 mph in 2013, rising to 110 mph in 2015; Ohio’s $400 million was to build a Cleveland- Columbus-Cincinnati route operating at 79 mph maximum speeds over existing freight tracks. It received a $400 million grant.

The Obama administration funded these projects largely because they were “shovel ready” (a key criteria of the stimulus act that provided $8 billion in rail aid to states) and because they represented “regional balance” for the Midwest that Congressmen from both parties demand when money is allocated for highways.

As we have argued, spreading out federal funds to too many marginal projects is a mistake operationally and politically. Operationally, intercity passenger rail will succeed only if it provides an obvious and understandable margin of superiority over highway trip times. Politically, moderate-speed lines advertised as high-speed (or as “emerging high speed,” in Obama administration nomenclature) confuses the public and opens up the federal initiative to legitimate criticism.

Studies indicate that somewhat-faster service will not create the transformational transportation that will get Americans out of their cars and jumpstart regional economies. This was underscored by a recent study of high-speed rail compared to conventional rail commissioned by the U.S. Conference of Mayors.

Because the up-front costs of truly modern train lines are high, the administration needs to concentrate on finishing one or two routes with state-of-the-art equipment to prove that fast rail is an efficient and even profitable venture once construction is completed.

Florida Should be Centerpiece

The administration now has the opportunity to fund true high-speed rail by reallocating the Midwest money. It can fully fund the high-speed Tampa-Orlando line in Florida as well as help get a segment of California’s proposed 200-mph railway between San Francisco and Los Angeles into revenue service. There may even be money left over to accelerate “shovel-ready” projects in busy rail corridors with proven ridership in Illinois and Connecticut.

Newly elected California governor Jerry Brown (D) is a strong supporter of his state’s rail program – as is outgoing Republican governor Arnold Schwarzenegger. Both Illinois incumbent governor Pat Quinn (D) and  Connecticut governor-elect Dan Malloy (D) are also pro-train.

Florida’s Republican governor-elect, Rick Scott, initially opposed the Tampa-Orlando line (the current governor, Charlie Crist, supports the project). But Scott has recently relaxed his rhetoric and says he is in favor of high-speed rail so long as Florida taxpayers don’t pay for it.

What reportedly swayed Scott was $800 million in fresh federal funds for the project last month. Florida now has $2.05 billion to complete the $2.6 billion line, including the $1.25 billion in federal funds it received in January.

Public-Private Partnerships

By reallocating a portion of the Wisconsin-Ohio funds, the $550 million gap could be closed. Or better yet, Washington could encourage private companies to invest in the Florida line by using federal funds as an incentive. Already Siemens, the high-speed locomotive maker, has announced interest in bidding on the Florida project if government shares a portion of the operational risk.

Such a public-private partnership would appear to satisfy Scott’s objections and could go a long way to appease Rep. John Mica (R – Fla.), a fan of public-private rail partnerships who is expected to become chairman of the House Transportation and Infrastructure Committee in January.

All of this could leave Wisconsin’s and Ohio’s new chief executives on the wrong side of the tracks. Or as a transportation official told the Milwaukee Journal Sentinel last week, “Expanding passenger rail is a national priority. Just because Wisconsin says no doesn’t mean it’s going away.”

The Strange Logic of Samuelson’s High-Speed Rail Critique

Posted on by The Progressive Policy Institute

Give Washington Post columnist Robert J. Samuelson credit – he’s a strong believer in recycling. Last year, he loudly derided the “mirage” of high-speed rail as “the triumph of fantasy over fact.” Yesterday, he denounced the “absurdity” of fast trains as “a triumph of politically expedient fiction over logic and evidence.” OK, he’s gotten a bit wordier, but you can see that once his mind is made up, it’s fixed in stone.

The same kind of thinking comes from nearly all critics of high-speed rail who bunker at the Heritage Foundation, Cato Institute, and other right-leaning groups – they have a curiously static view of transportation. To them, investing in future high-speed rail is an extravagant and illogical expenditure of public money because the lack of prior investment in high-speed rail has done little to change our travel patterns.

By that logic, America should never have built a transcontinental railroad. Consider that only a handful of wagon trains made it to California in 1862. Had Samuelson been writing then, he probably would have criticized President Lincoln’s proposal to spend taxpayer money on a steam railroad to San Francisco as a plan that “would subsidize a tiny group of travelers and do little else” – to borrow a phrase from yesterday’s column.

What’s missing from Samuelson’s worldview is that major advances in transportation drive economic growth. They have throughout human history. The joining of the Union Pacific and Central Pacific railroads in 1869 ushered in what economic historian Walt Rostow called the “takeoff period” of American industry.

Likewise, President Dwight Eisenhower did not justify interstate highways on the basis of established transportation patterns. U.S. railroads – not roads – carried the bulk of interstate freight, military personnel, and civilians during World War II. Instead, he warned that our national security in the Cold War 1950s depended on our ability to establish fast new highways to transport supplies throughout the country.

So when Samuelson denounces high-speed rail by citing today’s Amtrak ridership levels, he’s forgetting that rail traffic is far below what it would be if our passenger trains were remotely up to world standards. When we begin opening 200-mph railroads, a new level of traffic will appear very rapidly. It’s been dormant, waiting for a chance to move.

It is impossible to predict how much dormant traffic is waiting for a truly modernized rail system. Economic models don’t tell us, and Samuelson fails to even pose the question amid his attacks on high-speed rail as government “pork barrel.”

What’s remarkable (though not surprising, if one reads Cato’s Randal O’Toole and other rail critics) is Samuelson’s utter blindness to the fact that highways and airports require massive government “pork” to build and maintain. They don’t pay for themselves through fuel or ticket taxes, as their backers like to assert.

A Texas Department of Transportation study found that a new section of highway in Houston would generate only 16 percent of its total lifecycle cost from gas taxes. Texas DOT estimated a gas tax of $2.22 per gallon – nearly six times the present state and federal tax of 38.4 cents – reflected the actual cost of building and maintaining the highway.

Constructing 800 miles of high-speed rail in California is liable to cost more than $40 billion. Constructing and operating all 13 corridors proposed by the Obama administration could easily approach $200 billion. But these dramatic headline figures need context. The current transportation act allots $300 billion to highways – not for new construction since the interstate system is completed, but just for maintenance and rebuilding.

Huge costs loom as America’s highways reach the end of their productive life. Replacing the Tappan Zee Bridge in New York State is estimated to cost $17 billion. That figure is guaranteed to rise.

If interstate thoroughfares and vital bridges paid their way, private investors would be clamoring to commit funds to refinance them. They aren’t.

All modes of transporting people require subsidies. Amtrak’s direct subsidies of about $1.5 billion a year are transparent and highly publicized. Subsidies for cars and airlines are hidden in trust fund appropriations, user tax breaks, and local and state programs paid for by all taxpayers, including those who rarely drive and never fly.

In portraying himself as a hard-nosed realist free of the “fashionable make-believe” of rail advocates, Samuelson would do well to explain how he’d fix congestion, advance mobility, lessen pollution, and reduce our dependence on foreign oil by jettisoning an infrastructure program that directly addresses these issues.

photo credit: arbyreed

High-Speed Rail Funding Back on Track

Posted on by The Progressive Policy Institute

Hats off to the Obama administration. The $2.4 billion in high-speed-rail grants announced yesterday by the U.S. Department of Transportation not only helps fix deficiencies in the original round of rail awards back in January, but shows welcome political moxie.

By allocating the bulk of its FY 2010 investment to California and Florida, the administration has thrown its support behind true “bullet train” service, or trains running on dedicated rights of way at more than 150 mph. It now appears possible that high-speed segments could be open in California’s Central Valley and between Tampa and Orlando, Fla., by 2016.

That’s a big change from the first round of grants last January, which we argued was flawed by a scattershot approach of approving projects that only marginally increased passenger train speeds on upgraded freight track. What was needed, we believed, was funding focused on “do-able” 150-mph-plus links that would serve as templates for an emerging state-of-the-art passenger train initiative.

For the most part, the administration has done just that. To be sure, it has not come up with a way to finance HSR over the long haul and it still faces multiple challenges in Congress, especially if Republicans take over one or both chambers. But what’s striking about yesterday’s awards is the administration’s firmer grasp of how to get HSR segments up and running in the face of local obstacles.

Consider California, which received the biggest grant yesterday, $902 million. The DOT award requires the state to primarily focus on rail development in the Central Valley between Merced and Bakersfield, where land acquisition costs are low and trains could reach their full speed, rather than build costly urban segments through greater Los Angeles and between San Francisco and San Jose that have stoked Nimby opposition.

That’s a shrewd way to get a workable segment built and in revenue service to make the case that HSR is an attractive choice of transportation for Californians. Kicking off construction in the Central Valley also gives a political boost to Rep. Jim Costa (D-Calif.), a strong HSR backer who is in a tough race with Andy Vidak, a Republican with Tea Party backing.

Likewise, the administration took a decisive step toward fully funding the Tampa-Orlando HSR line (which we’ve repeatedly supported) by awarding $800 million to the project yesterday. Florida now has $2.05 billion in the kitty to complete the $2.6 billion project, including the $1.25 billion it received in January.

The new grant has already softened criticism by Republican gubernatorial hopeful Rick Scott. In the last few days Scott has dialed down his rhetoric against the rail line as an example of federal overreach. With groundbreaking scheduled for early 2011 and the Obama administration hinting at more money from discretionary funds, it appears unlikely that Scott would sacrifice thousands of construction jobs by scrapping the project outright. The Democratic candidate, Alex Sink, is a strong supporter.

Two other projects awarded grants yesterday, while not strictly high speed, will improve rail service in critical corridors. DOT gave Connecticut $121 million to help double track the Amtrak line between New Haven and Springfield, Mass., and upgrade service to 110 mph.

As part of the agreement, Connecticut agreed to release $260 million in state funds to rebuild other infrastructure, which will eventually increase train service from six daily roundtrips to 25 or more. This would make the Springfield segment an integral part of the Northeast Corridor and eventual route of a proposed “inland” corridor between New York and Boston.

A flaw of past federal policy was its failure to flag rail lines abandoned by freight carriers as potential passenger routes. As a result, thousands of miles of secondary lines between major cities, considered duplicative by freight railroads, were torn up between 1970 and today.

A similar fate now threatens 135 miles of rail line between Kalamazoo and Dearborn, Mich., owned by Norfolk Southern (NS). The track, used for Amtrak’s Chicago-Detroit trains, was downgraded this summer, a preliminary step toward a petition for abandonment by NS.

Yesterday, DOT stepped in with a $150 million grant to fund Michigan’s purchase of the line. Since Amtrak already owns 97 miles adjacent to this section, the proposed purchase would result in public ownership of nearly 80 percent of the Chicago-Detroit corridor, laying the foundation for a high-speed passenger route.

Yesterday’s awards include the remaining funds in the $8 billion stimulus package as well as money allocated for FY 2010 by the Democratic Congress. Funding for HSR has yet to be agreed upon by Congress for FY 2011. Outside of discretionary funds within DOT, yesterday’s announcement represents the last definite federal distribution for high-speed rail.

For a full list of DOT grants, see https://www.fra.dot.gov/rpd/passenger/2243.shtml

Chris Christie’s Tunnel Caper (Cont’d)

Posted on by The Progressive Policy Institute

New Jersey Republican Gov. Chris Christie had the power to kill the Hudson River rail tunnel or improve it. Today, for the second time, he killed it, saying, “I cannot place upon the citizens of the state of New Jersey an open-ended letter of credit.”

Lost in the controversy about Christie’s blunt style or national political ambitions, which drew a lengthy story in yesterday’s Wall Street Journal, is the fact that Christie’s own state agency, run by his own political appointee, is the prime reason why the project faces the reported runaway costs that the governor says the state can’t afford.

Originally, the trans-Hudson tubes were aligned to connect in Manhattan with Amtrak’s rebuilt Penn (Moynihan) Station, with a future connection to Grand Central Terminal on Manhattan’s East Side.

This plan was to connect trains using the new tunnel to Amtrak’s Northeast Corridor, as well as to rail lines spreading to Long Island, upstate New York, New England, and eastern Canada.

Instead, New Jersey Transit opted, mostly for parochial reasons, to abandon the Penn Station alignment in favor of a dead-end terminal under 34th Street usable only by NJT.

This decision was made under the administration of Democratic Gov. Jon Corzine. Christie defeated Corzine last November and appointed a new executive director for NJT, James Weinstein. It was Weinstein who Christie turned to in September to chair a committee whose three-page memo the governor subsequently used as the rationale for his decision to terminate the tunnel— a memo that never brought up the obvious design flaws of the dead-end plan or even addressed the potential cost overruns of the current project in any detailed way.

Among the co-signers of the memo was Bill Baroni, a prominent New Jersey Republican who Christie appointed as deputy executive director of the Port Authority of New York and New Jersey last February.

The Port Authority had pledged $3 billion to the Hudson tunnel, but now seems very happy to use the money for road purposes. In an interview earlier this year, Baroni cited two New Jersey projects, expanding the Goethals Bridge, and raising the Bayonne Bridge by 65 feet to allow larger ships to enter Newark harbor, as high-priority items for the port authority.

In trying to salvage the tunnel project during a two-week reprieve granted by Christie, federal officials reportedly offered several options to the state. They included one that eliminated the state’s risk of cost overruns.

But Weinstein, who acted as Christie’s representative in the talks, said the state wanted more hard cash than the $3 billion already pledged by the Federal Transit Administration.

It’s widely known that the transit agency has no ready funds because Congress has delayed passage of a new surface transportation authorization bill.

So as it stands today, the country’s largest rail infrastructure project will stay sealed at the whim of a single governor relying on a few hundred words of vague analysis by handpicked cronies.

For more details, see “A Tale of Two Tunnels.”